N910

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

IN THE MATTER OF THE COMPANIES ACT (CH NO 146) AND APPLICATION OF TINDIWI

Mount Hagen
Woods J

3 September 1990

COMPANIES - Directors - Disqualification - Convicted person - Leave of court to be director - Matters for consideration - Onus on applicant - Policy of legislation - Provincial Premier - Re-election following - conviction - Directorship of statutory corporation - Leave granted Companies Act (Ch No 146), s 142.

The Companies Act (Ch No 146), s 142, provides that a convicted person who "without the leave of the Court" is a director of a company within a period of five years after conviction is guilty of an offence.

Held:

(1) The policy of s 142 of the Companies Act is to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company; in its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards.

(2) An applicant for "leave of the court" under s 142 bears the onus of showing that the general policy of the Parliament ought to be made an exception in his case.

(3) Relevant considerations to the grant of leave in s 142 include, the nature of the offence for which the applicant was convicted, his general character, the structure of the company of which he seeks to become director, the nature and scope of its business, the interests of shareholders, creditors and employees and any risks to those persons of the applicant becoming involved in management.

Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205 and Zuker v Commissioner for Corporate Affairs [1981] VR 72; sub nom Re Record Leather Manufacturers (Aust) Ltd (1980) 5 ACLR 19, adopted and applied.

(4) Where the Premier of a provincial government had been convicted of misappropriation of moneys whilst Premier, subsequently re-elected as Premier and sought leave to be a director, in an interim capacity representing his government’s interests, in a statutory corporation, leave should be granted.

Cases Cited

The following cases are cited in the judgments:

Magna Alloys & Research Pty Ltd, Re (1975) 1 ACLR 203.
Zuker v Commissioner for Corporate Affairs [1981] VR 72; sub nom Re Record Leather Manufacturers (Aust) Ltd (1980) 5 ACLR 19.

Application

This was an application by a convicted person for leave of the court, under s 142 of the Companies Act (No 146) to be a director of a company notwithstanding the conviction.

Counsel:

R Howard, for the applicant.

3 September 1990

WOODS J.: This is an application by Danley Yandala Tindiwi, the Premier of Enga Province, for the leave of the Court pursuant to s 142 of the Companies Act (Ch No 146) to be a director of EngaCorp.

EngaCorp is a public company established as a result of an agreement between the National Government and the Enga Provincial Government in May 1989 in relation to the Pogera mine project. The purpose of the company was to enable Engan people and businesses to be able to participate in business activities generated by the Porgera mine project through the vehicle of a large public company.

At present the Enga Provincial Government holds 32 per cent of the share capital; however, eventually it will only hold 16 per cent, once a public offer of shares is made to the public.

In the original agreement, the Enga Premier is to be a director of the company in an interim capacity but in due course it would be envisaged that the Premier would be a director after the public issue to represent the 16 per cent provincial government share.

The applicant, the Premier, is currently disbarred from being a director by virtue of the fact that in July 1989 he was released from gaol after serving four years of a five year sentence of imprisonment for misappropriation of provincial government money.

The Companies Act, s 142, provides:

"Restriction on management of companies.

1. A person who —

(a) is convicted whether within or outside the country —

(i) on indictment, of an offence in connexion with the promotion formation or management of a corporation; or

(ii) of an offence involving fraud or dishonesty punishable on conviction with imprisonment for three months or more; or

(iii) of an offence under Section 139; and

(b) within a period of five years after his conviction or, if he is sentenced to imprisonment, after his release from prison, is without the leave of the Court a director or promoter of a company, or is in any way whether directly or indirectly concerned or takes part in the management of a company,

is guilty of an offence.

Penalty: A fine not exceeding K400.00 or imprisonment for a term not exceeding six months, or both.

2. A person intending to apply for the leave of the Court under this section shall give to the Principal Legal Adviser not less than 10 days notice of his intention so to apply.

3. On the hearing of an application under this section, the Principal Legal Adviser may be represented and may oppose the granting of the application."

Written notice was given to the Principal Legal Adviser’s Office of such intention to apply and the Solicitor-General’s Office in the Department of the Attorney-General did acknowledge this notice but has not followed it up in spite of numerous requests.

At the hearing of the application today, a representative of the Solicitor-General’s Office did attend to advise that the Department of the Attorney-General’s was still considering its position and sought an adjournment. In view of the fact that notice has been acknowledged over seven weeks ago, I feel that ample time has been allowed and I refused to adjourn the hearing of the application.

The policy to which this section gives effect is that a person convicted of an offence of any of the types specified in that section is not to be permitted to act as a director or to take part in the management of a company. The section is clearly to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company.

In its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards.

Whilst the court is given jurisdiction to grant leave to a person, notwithstanding the prohibition to act as a director or to take part in the management of a company, an applicant who comes seeking leave bears the onus of establishing that the general policy of the Parliament laid down in the section ought to be made the subject of an exception in his case. For this I follow the authority of cases in Australia and I note the comments of Bowen CJ in Equity in the Supreme Court of New South Wales in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205. His Honour in that case stated the following:

"The court in exercising its discretion will have regard to the nature of the offence of which the applicant has been convicted, the nature of his involvement, and the general character of the applicant, including his conduct in the intervening period, since he was removed from the board and from management. Where, as here, the applicant seeks leave to become a director and to take part in the management of particular companies the court will consider the structure of those companies, the nature of their businesses and interest of their shareholders, creditors and employees. One matter to be considered will be the assessment of any risks to those persons or to the public which may appear to be involved in the applicant’s assuming positions on the board or in management."

The above statement has been adopted as a current statement of the law in other places and I note in particular the statement of the Full Court of the Supreme Court of Victoria in Zuker v Commissioner for Corporate Affairs [1981] VR 72 at 78-79; sub nom Re Record Leather Manufacturers (Aust) Ltd (1980) 5 ACLR 19 at 25. I see no reason why this statement should not apply here in Papua New Guinea and I follow the statement of principle as matters which fix the area of enquiry I should make.

The offence concerned was the misappropriation of a substantial sum of money from the government whilst the applicant was Premier some years ago. Normally a court would be reluctant to place a person in exactly the same position as he then held. However, there are special circumstances here, namely, the fact that the applicant has gone again to the people at an election and received their mandate to again hold the position as Premier. So it could be said that if the people as a whole, having full knowledge of his previous wrong doing, have nevertheless given him a mandate to be Premier and have the responsibilities of such office, how can the court then refuse the applicant a position which both the National and Provincial Governments and the people expect him to exercise. And I here refer to the agreement between the National government and the Provincial Government that the Premier is to be a director of the company in an interim capacity.

With respect to the actual structure of the company the applicant will in the end be only one of 10 directors, a quorum of which will be five and thus at no time will he have any substantial control over the company.

Therefore in spite of the seriousness of the original charge, the renewal of the people’s confidence in him and the actual structure of the company leads me to the decision that there should be no hindrance to the applicant fulfilling his role as Premier by representing his Government’s interest in the company EngaCorp as a director. I grant leave to the applicant to hold office as a director of EngaCorp.

Leave to hold office as granted

_______________

Lawyers for the applicant: Warner Shand.